Money

Markets react to Trump win; Canadian investors could be in for a rough ride

THE ASSOCIATED PRESS

Wednesday, November 9, 2016
9:07:38 EST AM

In this Friday, Nov. 13, 2015, file photo, the American flag flies above the Wall Street entrance to the New York Stock Exchange. Global stock markets were steady Tuesday, Nov. 8, 2016, following strong Wall Street gains the day before, as investors focused on the final hours of a tight U.S. presidential race. (AP Photo/Richard Drew, File)

Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets and the U.S. dollar trim their hefty losses before North American exchanges open.

It set the stage for what could be a rough ride for investors in Canada, which counts the United States as its biggest trading partner.

“Donald Trump has been beating the odds for some time now, and he’s done it once again,” CIBC said in a note to customers by economists Royce Mendes and Avery Shenfeld.

“Given the surprising nature of Trump’s victory and the lack of clarity surrounding whether many of his proposals can become reality, the roller coaster ride has already begun for financial markets.”

In overnight trading, the Canadian dollar dipped more than a full cent against the greenback at one point. But the loonie was later trading at about 74.5 cents US — down two-thirds of a U.S. cent from Tuesday’s close but in line with recent values — in the hours before North American financial markets open at 9:30 a.m ET.

Though uncertainty remains over Trump’s trade, immigration and geopolitical policies, investors appeared somewhat soothed by his victory speech, in which he praised Clinton and urged Americans to “come together as one united people” after a deeply divisive campaign.

In Europe, Germany’s DAX was down 0.7% at 10,408 while the FTSE 100 index of leading British shares was 0.1% lower at 6,838. U.S. stocks are expected to open lower, too, though by far less than earlier predicted. Dow futures are 1.7% lower at 17,974 while the broader S&P 500 futures were down 1.8% at 2,097.

“That the reaction seen thus far appears to have been much more tempered is probably due to the emollient and conciliatory nature of Trump’s acceptance speech, and the fact that there was always that nagging doubt that the pollsters may well be wrong,” said Michael Hewson, chief markets analyst at CMC Markets.

As Trump gained the lead in the electoral vote count, investors became increasingly uneasy and share prices tumbled in Asia, which were open during the election results. Dow futures were down 4% at one point. However, by the time Trump was confirmed the winner and made his speech, financial markets had steadied.

The American dollar also recouped some ground, while assets that many investors search out at times of uncertainty, such as gold and the Swiss franc, came off earlier highs. An ounce of gold was up 1.9% at $1,299 while the greenback was only 0.1% lower at 0.9764 Swiss franc.

One currency that remains heavily sold is the Mexican peso. It was down 8.2% at 45 U.S. cents as the prospect of a wall along the United States’ southern border — a key campaigning point for Trump — has come one step closer to reality. Trump has insisted that Mexico will pay for the wall.

Also potentially impacting the peso is Trump’s threat to rip up trade deals including the North American Free Trade Agreement, a key plank in Mexico’s economic strategy and growth. A renegotiation of NAFTA would also have deep implications for Canada, which counts on the United States as its biggest trade partner and its largest customer.

“If Trump is able to follow through with these suggestions, Mexican activity will suffer greatly,” said Jane Foley, senior foreign exchange strategist at Rabobank International.

Under the U.S. constitution, Trump doesn’t formally take the reins of power until January but he will begin the transition to his presidency almost immediately. In the coming weeks, investors will be looking to see if he further tempers some of the rhetoric that polarized American opinion and often spooked investors in financial markets.

Trump’s victory could make the U.S. Federal Reserve less likely to raise its key interest rate at its next meeting in mid-December — especially if financial markets remain under pressure. Some analysts are ruling it out entirely.

“Less chance of a Fed rate hike also helps keep investors smiling at the prospect of cheap money and accommodative global monetary policy stance for a while longer,” said Mike van Dulken, an analyst at Accendo Markets.

Another point of interest will centre on the U.S.’s trade relations with China. Trump’s victory has raised concerns that the U.S. and China might embark on a trade war of sorts and that protectionism around the world will grow.

“Investors will right now be in the process of attempting to differentiate between Trump’s actual policy positions and some of the more outlandish statements made on the campaign trail,” said Michael Levy, an emerging markets investment director at Barings.